Benefits of Mergers
Mergers are when two organizations decide to join together and become one unit. The targeted company normally loses its identity and it is absorbed into the other company. The more fortunate organization reserves all the liabilities, privileges and rights of the targeted company. Here is a comprehensive look at key benefits of mergers.
1. Benefits failing companies
Mergers are highly beneficial to companies that are experiencing tough financial times. For instance, if a company is suffering from several difficulties financially and is unable to overcome the difficulties, then a merger is the best option. If a company that has a strong market presence acquires a weak firm, then there will be a more cost efficient and competitive organization created. The target firm benefits because it is saved from collapse by the large company. Apart from that, the joint organization accumulates a larger market share.
2. Increases productivity
When two firms join together through mergers, the joint business benefits with regards to cost efficiency and productivity. This is because the two companies join together to form a bigger and new company in which production is going to be done on a larger scale. As a result, there is an increase in output production and it is highly likely that the total cost of production is reduced.
3. Generates more value
Mergers also lead to revenue enhancement by market share gain since the joint organization is going to be able to generate even more value than separate companies. It is expected that after a merger, the new generated shareholder value is going to be much higher than that of the total shares of two separate firms.
There are quite a number of shortcomings of mergers also. For example, there could possibly be a conflict in terms of objectives between different companies. This means that decisions are harder to make and this can cause disruption in the management of the business.